Last month, Halifax Media, a Florida venture bankrolled in part by Arkansas billionaire Warren Stephens, bought 18 daily and weekly small-town newspapers in Florida’s Panhandle and in North Carolina. The deal came just six months after Halifax acquired 16 newspapers in six states. The buy took Halifax from a single newspaper in Daytona Beach with 88,685 in Sunday print circulation to a newspaper group with more than 658,000 in print circulation, more than 300,000 of it in Florida, making Halifax one of the largest media companies in the state.

"An active market"

Halifax Media’s announcement that it would buy 16 newspapers helped make 2011 a good year for newspaper acquisitions. Newspaper M&A firm Dirks, Van Essen & Murray, which represented Halifax, reports 71 newspapers changed hands in 2011 for a total of $788.75 million, the most dailies sold since 2007, when a record 91 went for more than $20 billion.

“I think there’s clearly an active market out there for the smaller newspapers. Prices are far below what they were. There’s even some prospect for modest growth going forward,” says Owen Van Essen, president of Dirks, Van Essen & Murray.

This year is shaping up to be even better. Warren Buffett’s Berkshire Hathaway acquired 63 Media General newspapers and Halifax bought 18 daily and weekly newspapers from Freedom Communications.

“At Halifax Media Group, we believe in the future of newspapers,” CEO Michael Redding said in announcing the purchases.

That belief makes Redding and Halifax contrarian investors. Halifax gobbled up papers at a time when conventional wisdom says the internet has done to newspapers what Henry Ford did to buggy whips.

Once, owning a media company in a growth state with market-dominating properties in tiny Panhandle towns and in Sarasota, Lakeland, Daytona Beach, Ocala, Gainesville and Winter Haven — as Halifax does — meant a ticket to fat profits. But the model has taken a pounding, most recently from the internet.

Newspaper print circulation peaked nationally in 1984 and has declined steadily even as the population has grown. Sunday circulation at the News- Journal in Daytona, for example, fell 21% in the past 10 years. Circulation at the 16 papers Halifax acquired in January is down, depending on the property, from 14% to 38% over the decade.

While the websites of Florida’s major papers all attract millions of readers, papers haven’t been able to get advertisers to pay to reach them at rates comparable to print ads. Meanwhile, print advertising revenue — where newspapers always made most of their money — has been dismal. Classified advertising, a high-margin business that once accounted for nearly a third of some papers’ revenue, has been eroded by internet sites likeCraigslist.

Against that backdrop, Halifax in 2010 scooped up the Daytona paper in a court-forced sale following a falling out between its owners, the Atlanta-based Cox newspaper and cable company and Daytona’s Davidson family. Halifax paid $20 million. Four years earlier, a judge put the value of the company at $129.2 million.

"We learned that giving away our products back in the beginning of the internet was not our best move. Pay walls are now inevitable.”

— Halifax CEO Michael Redding

Then, late last year, Halifax announced it would buy the 16 papers that made up the New York Times Regional Newspaper Group. The Times long had used the local papers as cash machines to support the flagship and to provide geographic insulation against downturns in the New York economy.

Their parent’s prestige didn’t save the local papers from industry trends, however. Over the decade, the group’s 44% increase in new digital revenue (off a small base) was swamped by a 12% drop in circulation revenue and a 50% drop in ad revenue. Revenue for the regionals came in at $260 million in 2011, a 39% drop over the decade. Last year, the Times group wrote down the $152-million goodwill value of its regional newspaper group to zero.

Halifax hasn’t said much about its plans for the papers and their 2,900 employees, but several factors provide some indication of the company’s thinking and strategy.

The papers are in small markets where a newspaper still can dominate the news business and not have to worry about competition from the multiplicity of sources faced by metro papers.

Halifax has taken steps to improve margins. As it did in Daytona, it has cut staff at the former Times papers. Poynter Institute for Media Studies in St. Petersburg reported in February that Halifax laid off 30 employees at the Times regional group headquarters in Tampa and instructed the remaining 20 to relocate to Daytona or be laid off. The Times papers already shared a common web format. Some papers in nearby markets shared administration and support.

• Halifax’s point man is CEO Michael Redding, a former Daytona Beach News-Journal ad executive living the wage-slave’s dream of buying his one-time employer. Before Halifax, he worked for newspaper chains Gannett, American Publishing Co. and Liberty Group and founded HarborPoint Media, owner of the Leesburg Daily Commercial and other papers.

• HarborPoint got its papers from a company led by Better Built Group’s Rupert E. Phillips, a Destin investor whose interests through the years included the Honolulu Star-Bulletin and papers in Arkansas.

• Arkansas happens to be the home state of billionaire Warren Stephens, whose Stephens Media holdings include the Las Vegas Review-Journal and small-town papers in nine other states.

Eventually, online readers will have to pay to access some content. While it’s unclear how charging the online audience will play out at smaller newspapers, the industry has been encouraged after introducing so-called “pay walls” at some papers. The Sun-Sentinel in Fort Lauderdale, for example, now charges non-print subscribers approximately $10 every five weeks for online access. Halifax spokeswoman Lori Catron said Redding was too busy for an interview; in e-mailed comments, Redding said the industry “learned its lesson the hard way with the internet and websites. We learned that giving away our products back in the beginning of the internet was not our best move. Pay walls are now inevitable.”

The company bought viable businesses. Though diminished in recent years, the 16 Times group newspapers Halifax purchased churned out a $36.6-million operating profit last year. And Halifax’s investment is protected on the downside by the asset value of those properties, which it bought essentially for scrap prices — at a discount to the value of their real estate and other property.

The Times had pegged the net asset value of the papers at $159 million. Halifax paid $143 million for the lot. (Halifax took on $74.2 million in debt to close the purchase.) It didn’t disclose terms for the 18 small papers bought in June from Freedom Communications.

In his written comments, Redding said, “Maybe someday the printed product in its current form will be discontinued, however we don’t think it will be anytime soon.”

In Redding’s view, print advertising still gets results. It fell because businesses cut expenses as consumers cut spending. “Newspapers for the most part were the largest part” of companies’ advertising budgets, Redding wrote. “We are starting to see that trend flatten off and beginning to turn the corner.”

His partner Stephens, in an interview with Forbes magazine’s Steve Forbes, professed a belief that readers eventually will recognize the value of professionally produced local news. “We have a joke around the office about people that are always in their pajamas blogging. Well, that’s not really news; that’s not really professional reporting. I’m interested in reading someone that’s thoughtful and a professional journalist that’s had an editor question what their sources are and improve their writing and get the story as tight as it can be,” Stephens said. “I just don’t think there’s any way you’re going to get local news, sports, politics from any other source but your local newspaper.”

With the newspaper industry’s future clouded, Halifax now is routinely mentioned as a possible acquirer of other chains and properties, including Media General’s Tampa Tribune. On the question of additional acquisitions, Redding didn’t respond.

Quaity Issue

Halifax Media newspapers the Tuscaloosa News in Alabama and Sarasota Herald-Tribune have won Pulitzer Prizes, but both won for work done while owned by the New York Times. When Halifax bought the News-Journal in Daytona in 2010, CEO Michael Redding announced to readers a shift in opinion-page policy at the liberal paper. “Our own editorials will champion free enterprise, individual rights and responsibilities, and the importance of community involvement,” Redding wrote.

After the Times deal closed this year, Halifax drew negative attention within the industry for a short-lived attempt to get employees of the former Times newspapers to sign non-competes. Redding backed off and requires them now only of new hires.

Online postings have had plenty of negative things to say about Halifax, but complaining reporters are common and across the industry, newspapers routinely have cut pay, staff, benefits and resources to stay alive. If Halifax’s cuts affect the quality of its papers, it won’t be the first.